In 2020, Pop Construction Corp. began work on a contract for $ 3,700,000. Other details follow: $\begin{array}{llcc}
&\underline{2020}\
\text {Costs incurred during the year } &\$1,800,000 \
\text { Estimated costs to complete as of December 31 } &1,200,000\
\text {Billings during the year } &1,650,000\
\text { Collections during the year } &975,000\
\end{array}$

Pop uses the percentage-of-completion method. For calendar 2020, Pop should report gross profit of
A) $ 150,000.
B) $ 420,000.
C) $ 700,000.
D) $ 2,220,000.

Question

In 2020, Pop Construction Corp. began work on a contract for $ 3,700,000. Other details follow: $\begin{array}{llcc}
&\underline{2020}\
  \text {Costs incurred during the year  } &\$1,800,000  \
 \text { Estimated costs to complete as of December 31 } &1,200,000\
 \text {Billings during the year  } &1,650,000\
 \text { Collections during the year } &975,000\
\end{array}$

Pop uses the percentage-of-completion method. For calendar 2020, Pop should report gross profit of
A) $ 150,000.
B) $ 420,000.
C) $ 700,000.
D) $ 2,220,000.

Quizplus · Accepted Answer

To determine the gross profit, we need to calculate the percentage of completion based on costs incurred during the year divided by the total estimated costs.

Percentage of completion = Costs incurred during the year / Total estimated costs 
= $1,800,000 / ($1,800,000 + $1,200,000) 
= 0.6 or 60%

Using this percentage, we can calculate the revenue and the gross profit:

Revenue = Total contract price x Percentage of completion 
= $3,700,000 x 60% 
= $2,220,000

Cost of goods sold = Total estimated costs x Percentage of completion 
= $3,000,000 x 60% 
= $1,800,000

Gross profit = Revenue - Cost of goods sold 
= $2,220,000 - $1,800,000 
= $420,000

Therefore, the correct answer is B) $ 420,000.

In 2020, Pop Construction Corp Pop Uses the Percentage-Of-Completion Method